How did I know this post would get you going?
'FWAAA'
AA is carrying $4.3 billion in total cash, of which about $500 million is restricted cash, so AA is actually carrying about $3.8 billion of unrestricted cash. Since the bank loan still requires that AA hold a billion of unrestricted cash, only $2.8 billion of that is "excess" under your definition.
No thats under YOUR definition. Under my definition of excess cash its cash not needed for the operation. $1 billion in cash to satisfy a bank loan is excess cash as far as I'm concerned, along with the other $2.8 billion. Do you want to quibble about the $200,000,000?
Why hold all that cash? One reason is that AA is not certain that it could re-borrow it if it paid some of the debt off.
Uncertainty is another word for risk, which is the business of business. Its absurd to think that AMR would have a hard time getting needed capital when you consider that USAIR, UAL and others seem to be getting what they need, after going BK.
Other reasons for holding $2.8 billion of cash over the minimum $1 billion of unrestricted cash include a contingency fund with which to buy NW or certain key NW assets if they become available (NH/BBs understands this); the need to contribute $250 million to the pension plans this year; the need to repay about $1.2 billion of maturing debt this year, among others.
Why not just get the loan if the opportunity comes up like everyone else does? By the way I already mentioned that.
Fuel will probably cost a billion more this year than last year, so maybe being cash-rich right now is not so bad as you make it out to be.
Then raise the price of tickets or better yet simply add a "fuel surcharge", this way they can say the price is the same, like everyone else does.
Yep, it's borrowed money. If you ran a business as large as AA, you might understand why it's a good thing to have a couple billion of cash on hand.
Not if its costing a couple of hundred million a year and means the difference between posting a profit or a loss.
If I ran AA, I might think it was very worthwhile to hold that cash.
Why? Unless of course you were using the losses to gain long term concessions that would leave you very profitable in the future.
Sounds like you should take it up with the banks - in 2003, the banks held all the cards;
The banks need to lend money, if they sit on it there is a cost factor for them too, it might only be as low as 1.5% but it still costs them. Remember my mortgage example? The banks want to lend money. How come AA is the only carrier, especially when you consider the fact, as you even admit, that financially they are one of the strongest, that has to hold such a large amount of untouchable, unuseable cash? I'll admit its a great deal for the Bank, AMR sits on a billion and pays the bank interest on it, if the bank should need the money they could simply say to AMR that they no longer need to have that extra billion on hand and AMR could boast about how they lowered their debt.
AA certainly didn't. AA was begging the banks for more money and the banks were able to dictate the terms.
AMR was begging? So the bank says "We dont really want to lend you the money you need but if we do decide to lend you anything you have to borrow an extra billion?
Sorta like when a successful union goes on strike against a profitable company and the company is pretty much forced to give in.
Not really. The relationship between the banks and the airlines is different than the relationship between management and the employees. Its comparatively very easy for AA to go to another bank or find some other means of raising needed capital. Its much more difficult for companies to replace their entire workforce and for the workforce to all change jobs. Switching business from Citibank to Commerce is a lot eaiser than replacing your workforce or changing jobs.
Yes, unless you are a conspiracy theorist and actually believe that AA's 2003 financial problems were just a well-orchestrated ruse to bust your union. And maybe you do believe that. I don't. The banks didn't threaten to liquidate AA if it defaulted, but it would have caused a Ch 11 filing.
Well here we go again. The downturn was real, however instead of taking measures to mitigate its effects the airlines sought to exploit it.
Sure they publicized all their so called "cost saving initiatives" but a closer look reveals that they really didnt do much. On the one hand we see where companies like AMR will tout their "one engine taxis" to save fuel but they leave out how arriving aircraft sit on the ground for hours waiting for a gate because they dont have the manpower to load and unload the planes. One engine burns between 600 to 1100 lbs of fuel per hour. So one engine running for one hour would pay two ramp workers for eight hours, or eight part timers for four hours. Thats only the fuel costs, of one airplane, you also have to add in the cost of the delay as far as cancellations, vouchers, crew costs etc.
Mechanics who go out to taxi planes from the hangar to the terminal find 10,000 lbs of fuel in the right tank and 2000 in the left, it certainly didnt fly in like that, 8000lbs burned in the APU, multiply that by 20 airplanes thats 22,850 gallons of fuel times $2/gallon, $45,700 a night, and thats only one station. Thats more than the entire payroll for maintenance at JFK.
So what I'm saying is the airlines went into this downturn with the objective of exploiting it to crush us. Call it what you like.
UAL's professional fees (lawyers, accountants, consultants and other parasites) will cost it about $600 million for their 3+ year stay in bankruptcy. AA saved that money by charting the "pay your bills and don't renege on your pensions" route.
No they saved it by reducing pay and benifits below those of even the LCCs like SWA and by paying out 900 million, each year or $2.7 billion over the three years, in interest. So in order to avoid paying the "parasites" $600 million they paid out $2.7 billion in intrest.
$400 million of interest on $4 billion? Where did you come up with that?
I figured a 10% intrest rate would be conservative, are business rates typically much lower?
AMR paid $957 million on its entire debt load of something like $20 billion last year - that's less than 5%. So why do you then make the outlandish assertion that AA paid 10% or so on its cash on hand?
I meant that AMR paid out 5% of their total revenue to service debt.
Debt load? Define what you mean by debt load. Do you mean that if AMR were to decide to pay off all the money it borrowed it would have to come up with $20 billion? Or are you claiming that the Interest that AMR is paying on its debt is lower than the rates at which the Fed lends money to the banks. If AMR only paid $900 million for $20 billion in loans they are getting a great deal, 4.5%. That doesnt sound like the banks were holding all the cards. When I got 8% for my mortgage of $100,000 I thought I got a great deal, and the bank had almost zero risk because the house was worth over $150,000 at the time.
Another thing - you ignored the $157 million of interest income earned by AA last year. Although you and me tend to pay high rates when we borrow and tend to receive very low rates when we deposit money, big businesses have a knack for earning as much (or nearly as much) interest on their cash as they pay on their debt.
And how much of that $157 million was earned off funds that were for the pension? Paying out $900 million to earn $157 million is not a good deal. Sitting on $1 billion in cash that you cant use is not a good deal.
Sometimes, it's even possible to earn more interest on the cash as paid on the debt. Recently, that has been the case, with short term rates exceeding long-term rates.
More BS. AA paid out over $900 million in interest last year. Nearly $1billion in interest and posted a loss for the year. The banks made over $1billion thanks to AAs operations but the employees are being told they have to put out more because the company is losing money. Nearly $1 billion in interest to the banks, much of that interest being paid on excess cash being carried by the company for what ifs and maybes.
No, AA earned $149 million of interest income and also recorded $65 million of capitalized interest. The net borrowing costs were thus $743 million. That's 3.6% of its revenue of $20.7 billion. BFD.
Good luck with that. Let us know the "industry wide shutdown" works out. Wouldas, couldas and shouldas don't feed families, and most workers know that.
Neither do pay cuts.The fact is this system would be kept running but if we stick together and fight back then we would get a better deal. What we have now is a job that only partially feeds our families and generates billions in profits for the banks, lessors, airports, oil companies etc. The same institutions that own the money losing airlines make huge profits directly through the business they do with the airlines, the less we get the more they can get, so it really doesnt matter if the airlines lose money, it only matters that they keep flying and generating that cash flow that ends up in their pockets.If we shut it down they all lose, at the very least we wouldnt be the only ones losing.
$743 million in net borrowing costs last year, not almost a billion. I understand that the represented workers contend (perhaps correctly) that their concessions were grossly undervalued by AA, but let's stick to the official number for the concessions: $1.6 billion from the unions and $200 million from management and nonrepresented employees.
You use net, I'll use gross. You dont mind citing gross when you say how much we are paid. The fact is that from where I'm sitting even $743 million is a lot closer to a billion than I'll ever see.
Given that you used to be the Treasurer for your union local, perhaps you should parlay that expertise and experience and apply for the job of CFO of AMR; you know, the position currently held by James Beer.
Whats the matter cant come up with anything substantial to debate so you resort to petty attacks? Why not attack what I said about having to sit on $1billion in cash?
